Question 4 of 7: Fill-in-the-Blanks Income Statement — Glare Import Company

Question 4: Fill-in-the-Blanks Income Statement — Glare Import Company (14 marks)

Question text not reproduced: the examination questions are © Engineers and Geoscientists BC. Open the official past paper (linked at the top of this page) to read the question, then follow the worked solution below.

Given. Two years of partial income-statement data (see box above) for Glare Import Company; “Cost of sales” and “Gross profit” are each given as a percentage of net sales revenue for whichever year its own dollar figure is not otherwise supplied.

Find. Every missing dollar amount in both years' income statements, including profit and earnings per share.

Approach. Work down each column top to bottom: derive Sales discounts/Net sales revenue by subtraction, apply the given percentage to get whichever of Cost of sales/Gross profit is missing, then subtract Operating expenses to reach Profit before tax, apply the 30% tax rate, and finally add/subtract the discontinued-operations item to reach Profit and EPS.

1. Year 1 — Sales discounts and Cost of sales. Net sales revenue is given directly ($207,000), so $$\text{Sales discounts}=210{,}000-207{,}000=\boxed{\$3{,}000}.$$ Gross profit is given as $40\%$ of net sales revenue: $$\text{Gross profit}=0.40\times207{,}000=\boxed{\$82{,}800},\qquad \text{Cost of sales}=207{,}000-82{,}800=\boxed{\$124{,}200}.$$
2. Year 1 — Profit before tax through Profit. Operating expenses are given directly ($42,800): $$\text{PBT}=82{,}800-42{,}800=\boxed{\$40{,}000},\qquad \text{Tax}(30\%)=0.30\times40{,}000=\boxed{\$12{,}000}.$$ $$\text{Profit before disc. ops}=40{,}000-12{,}000=28{,}000,\qquad \text{Profit}=28{,}000-10{,}000_{\text{loss}}=\boxed{\$18{,}000}.$$ $$\text{EPS}=18{,}000/8{,}000=\boxed{\$2.25}.$$
3. Year 2 — Net sales revenue and Cost of sales. Sales discounts are given directly ($5,000): $$\text{Net sales revenue}=255{,}000-5{,}000=\boxed{\$250{,}000}.$$ Cost of sales is given as $60\%$ of net sales revenue: $$\text{Cost of sales}=0.60\times250{,}000=\boxed{\$150{,}000},\qquad \text{Gross profit}=250{,}000-150{,}000=\boxed{\$100{,}000}.$$
4. Year 2 — Operating expenses through Profit. Profit before tax is given directly ($70,000), so $$\text{Operating expenses}=100{,}000-70{,}000=\boxed{\$30{,}000},\qquad \text{Tax}(30\%)=0.30\times70{,}000=\boxed{\$21{,}000}.$$ $$\text{Profit before disc. ops}=70{,}000-21{,}000=49{,}000,\qquad \text{Profit}=49{,}000+2{,}500_{\text{gain}}=\boxed{\$51{,}500}.$$ $$\text{EPS}=51{,}500/8{,}000=\boxed{\$6.4375}.$$